Gold lending by NBFCs is increasing day by day. When a NBFC lends against gold, the RBI lets it lend only a part of what the gold is worth. This share is called the loan-to-value ratio, or LTV/loan share.
| Customer’s total loans against gold and silver | Maximum a NBFC can lend, as % of gold value |
| Up to 2.5 lakh | 85% |
| Above 2.5 lakh, up to 5 lakh | 80% |
| Above 5 lakh | 75% |
Now the important part. The RBI says this share must be kept “on an ongoing basis throughout the tenor of the loan”. In simple words: it is not checked only on the day the loan is given. It must be true every day until the loan is closed.
Why does this matter? Because gold’s price moves and the NBFC’s loan does not. For example, take gold worth 1,00,000 and a loan of 80,000. The loan share is 80%, which is allowed. If gold falls 6% to 94,000, the same 80,000 is now 85.1% of the gold. That is over the 85% limit. The customer paid on time. Nobody made a mistake. Only the gold price changed.
The interesting part is that a loan that was within the RBI limit yesterday can be outside it today, without anyone doing anything wrong.
The numbers tell this story
- Gold can fall fast. On 30 January 2026, gold fell around 12% in a single day. This means many of the loans may have crossed the 85% limit that evening.
- The market has grown quickly. NBFC gold loans reached 3.41 lakh crore in June 2026, up 69.3% YoY, as per the data published in Outlook Business, based on the RBI data reported in the press.
- Gold loans have emerged as the largest segment within non-housing retail loans, growing at a CAGR of 42.4% since March 2024 – nearly twice the pace of overall non-housing retail loans (CAGR of 23.0%).
- The RBI has noticed. Its Financial Stability Report observed that existing customers took bigger loans and rolled over old ones as gold got costlier and warned that a long price fall could raise defaults.
- Bigger loans carry more risk. Loans above 2.5 lakh miss payments more often: 1.5% against 0.7% for smaller loans, as per a TransUnion CIBIL report.
Put together: a fast-growing book, built on a rising price, with bigger loans and rollovers. This is where an RBI officer is most likely to look first.
How much room does a loan have?
The lower the loan share, the more the gold can fall before the NBFC crosses the limit. For the 85% limit:
| Loan as % of gold value | How much gold can fall before the 85% limit is breached |
| 85% | 0% |
| 80% | 5.9% |
| 75% | 11.8% |
| 70% | 17.6% |
Which gold price to use
Not the rate shown outside the jeweller’s shop. The RBI is clear. Take two prices and use the lower one:
- the average closing price of the last 30 days, or
- yesterday’s closing price.
The price must be for the gold’s actual purity (for example, 22 carat) and must be published by the India Bullion and Jewellers Association (IBJA) or by a commodity exchange regulated by SEBI. If there is no price for that exact purity, use the nearest purity and adjust the weight in proportion. Count only the gold. Stones and gems add nothing.
A useful side effect: when gold has been rising, the 30-day average is lower than today’s price, so the NBFC’s loans carry some extra safety. It disappears as soon as gold turns and falls below its average. NBFC should not plan on it.
Three things that quietly push a loan over the limit
Interest. If the customer pays everything on the last day, the RBI checks the limit on the total due at the end, interest included. For example, if a NBFC lends rupees 85 against rupees 100 of gold at 18% a year, 100.30 becomes due. The NBFC is over the limit before gold moves. A safer loan is about rupees 72 (gold value × limit ÷ 1.18). These loans can run for 12 months at most.
The 2.5 lakh step. On a plain reading of the RBI Credit Facilities Directions, once a customer’s total loan goes above 2.5 lakh, the whole loan comes under the 80% limit. With gold worth 3.2 lakh, a 2.5 lakh loan is fine (78%), but 2.6 lakh is not (81%). The highest total a NBFC can reach is 2.56 lakh.
Renewals and top-ups. A top-up is an extra loan on the same gold. Both a renewal and a top-up are allowed only if: the customer asks formally, the NBFC checks the customer’s ability to repay, the new loan stays within the limit, the loan has no overdue problem, and, for pay-at-the-end loans, the interest owed is paid first. Both must be clearly marked in the NBFC’s system. They can never be used to cover a loan that is already over the limit.
NBFC compliance to-do list for gold loans
| Stage | What to Do |
| Policy | Board-approved gold loan policy covering customer & portfolio limits, breach action, valuation and purity standards |
| Before Lending | Obtain a signed declaration of gold ownership. Do not finance the purchase of gold, Gold ETFs/Gold MFs or lend against gold/silver bars.For loans above 2.5 lakh, assess repayment capacity.Maintain a single customer record and monitor prescribed pledge limits. |
| Daily Monitoring | Value gold as prescribed and check all outstanding loans against applicable limits.Monitor multiple/repeated loans and undertake enhanced scrutiny where required. |
| Renewals / Top-ups | Ensure all renewals and top-ups comply with prescribed conditions. |
| Gold Safety | Do not re-pledge customer gold.Do not lend against gold already pledged elsewhere. |
| Money Flow | Disburse loan only to the customer’s bank account.Receive repayments directly into the NBFC’s account.Follow KYC and applicable Income Tax/cash requirements. |
| Reporting | Show gold loans and silver loans separately, each as a % of total assets, in its balance sheet. |
The exit rules
- Return the gold on the same day or within 7 working days of full repayment, with compensation of rupees 5,000 a day if late.
- Conduct auctions with public notice and a starting price of at least 90% of value (85% after two failed auctions).
- Return any surplus within 7 working days.
- Pay compensation for loss or damage to the pledged collateral.
- Keep the customer present when gold is tested, with all charges disclosed in the agreement and the Key Fact Statement.
How a NBFC can track it
- Management should ask for a daily list of every open loan, ranked by how close it is to the limit.
- Management should ask for a monthly note to the Board showing how many loans would cross the limit if gold fell 5%, 10% and 15%.
- Management should pick ten loans and follow each from sanction to closure. Can the NBFC show the price used, the daily check, the ownership paper and every renewal? Fix any gap in the records.
- Generate alerts linked to the gold price to stay compliant with the LTV.
The article is written by Mr. Ashok Pathak
Reference Links
- Reserve Bank of India. Non-Banking Financial Companies – Credit Facilities Directions, 2025
- https://economictimes.indiatimes.com/markets/stocks/news/gold-plunges-12-in-biggest-single-day-selloff-key-levels-to-watch-on-budget-day-2026/articleshow/127814942.cms?from=mdr
- https://www.outlookbusiness.com/markets/gold-loans-are-becoming-a-bigger-part-of-retail-lending-whats-driving-the-shift
- Financial Stability Report June 2026
- https://www.tradejini.com/blogs/gold-loans-become-secondlargest-retail-credit-segment-in-india-report